Refined Strategies: Luxury Extends Its Reach Across China
Refined Strategies: Luxury extends its reach across China
consumer markets
CONTENTS
2 Introduction
3 Key findings
4 About the survey
5 Effect of the downturn: China’s consumers emerge confident from 2009
12 Luxury consciousness in China
22 Technology: Can mass media be exclusive?
25 Working capital challenges for luxury businesses
30 Strategies in a strengthened transfer pricing environment
33 Customs approaches for luxury companies
38 About KPMG
39 About TNS
40 Contact us
Case studies
– Tim King, Alfred Dunhill Ltd.
– Kent Wong, Chow Tai Fook
– Allison Pyrah, Swarovski
– Helmuth Henning, Jebsen & Co.
– Denise Lo, Richard Mille Asia
– Mark Lettenbichler, Ritz Carlton Group Hotels
– Andrew Yu, I.T Group
– Raphael le Masne de Chermont, Shanghai Tang Introduction
In particular, the “super rich” segment China – not merely in the more well- has continued to grow despite the known major cities of Beijing, Shanghai recent global economic turbulence. and Guangzhou. To that end, we have While younger professionals and highlighted a number of tier-two and other aspiring consumers may have three cities that, while not having struggled to command higher salaries the same global fame, have large over the past year, privately-owned and increasing numbers of wealthy enterprises are increasingly surpassing households. Nick Debnam the former state-owned enterprises as Partner in Charge generators of wealth, creating a new There is also clear scope for greater Consumer Markets consuming elite. The October 2009 use of technology in communicating KPMG China launch of ChiNex, China’s Nasdaq- with customers. With the ubiquity of style second board in Shenzhen, is an mobile phone usage in China, and the George Svinos illustration of this, effectively creating advent of 3G technology expanding Head of Retail dozens of yuan billionaires overnight.3 what can be done through mobile Asia Pacific communications, there are plenty of KPMG Australia Our latest survey shows Chinese options for engaging customers on luxury consumers maintaining an ongoing, personal basis. While the reasonable confidence about their importance of the in-store experience Much has changed since our previous economic situation, as well as being continues to trump ideas of major report on China’s luxury market in comfortable with the idea of paying online luxury retailing, customers 2008 and we face a markedly different large sums of money, and ever more are looking to the web to research global economic landscape. As in many discerning and sophisticated in the different brands. Luxury companies other aspects of the global economic retail choices they make. On the back looking to connect with the public crisis, China is bucking a global trend of our 2008 report’s focus on different should be making the most of the in luxury consumption: with sales city tiers, it is clearer than ever that interactive media available to them. falling by up to 8 percent across the China is not simply one luxury market, globe in 2009, China saw estimated as it has a wide range of influences, Opportunities continue to abound sales growth of 12 percent.1 By some drivers and perspectives in different in the China luxury sector, and the measures, China is now the second segments across the country. rewards are potentially huge. If you largest luxury market in the world, are interested in further discussing after Japan.2 Despite the relative optimism about the issues and suggestions raised in the Chinese luxury market, many this report, KPMG China’s dedicated With decreased business travel respondents expected to decrease Consumer Markets team would be expectations, China’s mainland their spending on luxuries in 2010. delighted to share their knowledge and luxury stores may be in a position Retailers will need to remain alert to insights with you. to capture a greater proportion of potential downward shifts in certain Chinese consumers’ luxury spending. product sectors. Whichever way you look at it, China’s relatively confident consumers are There continues to be huge potential now a key factor for the global luxury for growth and opportunities across market.
1 “Luxury Goods Worldwide Market” study, Bain & Company, October 2009 2 China becomes world’s 2nd largest luxury market, People’s Daily, 27 July 2009 3 Stocks sizzle as China debuts start-ups market, Reuters, 30 October 2009
2 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 3
Key findings
Effect of the downturn • Thirty-eight percent of respondents expect to spend less on luxuries due to the economic downturn. However, 44 percent say they will spend either the same amount or more.
• Most of those who are expecting to spend less say they would rather spend less on higher-level brands than switch to cheaper brands.
• Brands can consider responding to this environment with more closely- managed working capital strategies.
Luxury drivers • Personal reward and pampering rank as the main motivators for luxury spending, closely followed by formal use – clearly demonstrating luxury’s psychological, as well as physical, function.
• The in-store experience remains an important driver of the “specialness” of luxury, highlighting the importance of impressive retail spaces and attentive, well-trained service staff.
City tiers • Despite some hesitancy from respondents in tier-two and tier-three cities, retailers report bullish expansion plans across China.
• Companies looking to extend their footprint to new cities should consider the pros and cons of franchising, direct investment and partnership to enhance their chances of success.
Technology • Though respondents were generally positive about paying for general retail purchases by mobile phone, there appears to be less interest in paying for luxury goods this way, highlighting the continued importance of the direct luxury retail experience.
• Companies may nevertheless be able to explore mobile marketing communications: 57 percent of respondents would be interested in receiving updates on new arrivals or limited editions by SMS; while 64 percent would be interested in validating the genuineness of their purchases using their mobile phone or device.
Tax and customs issues for the luxury sector • The downturn has increased pressure on nations’ tax bases, and Chinese tax authorities are becoming increasingly stringent in their transfer pricing requirements and monitoring.
• Luxury retailers should pay particular attention to opportunities for customs savings in their treatment of items such as royalty payments and marketing expenditure. About the survey
TNS conducted their survey of luxury consumers in the third quarter of 2009. They conducted interviews with 927 consumers, all of them between 20 and 44 years of age.
To qualify, respondents in Beijing, Shanghai, Guangzhou and Shenzhen needed to earn RMB 6,500 or above. In other cities, it was RMB 4,500 or above. These other cities included Fuzhou, Hangzhou, Nanjing, Dalian, Harbin, Shenyang, Tianjin, Wuhan, Xi’an, Chongqing and Chengdu.
The female: male ratio was 51:49 and 71 percent of respondents were educated to college/university level or above.
The consumer research was supported by qualitative research, involving 12 in-depth interviews with high- earning consumers.
Unless stated otherwise, statistics referred to in this report are based on TNS research. Refined strategies: Luxury extends its reach across China 5
Effect of the downturn: China’s consumers emerge confident from 2009
In the aftermath of the financial crisis of late 2008, it was not immediately clear how deeply China would be affected. Overall, China rebounded better than many other nations, with GDP growth of 8.7 percent in 2009.4 However, the downturn could not help but have an effect on China’s generally confident luxury consumers. TNS survey respondents indicate that their spending plans were affected by the crisis, though confidence rose as the Chinese economy seemed to bear up strongly in the global recession. Luxury retailers in China were further protected by the continuing confidence of their highest earning clientele and their intentions not to cut back on their spending.5
Impact of the crisis Most respondents (72 percent) reported that the downturn had had little or no impact on them. An even higher proportion (84 percent) expect a similar level of impact (not at all or only slightly) for 2010. However, in the export-dependent south, 31 percent said the downturn had had a significant impact on them, compared to just 20 percent in central and northern areas, and 21 percent in the east.
A brief rocky period during 2009 has been followed by an increasingly positive outlook for 2010. While confidence dropped in 2009, TNS’s most recent polling suggests that fewer respondents feel that the crisis will affect them significantly; a few more believe they will be untouched by the crisis; and 84 percent feel the impact will be slight at worst.
During the course of 2009, consumer expectations were notably affected by lower salary and bonus payments for the year, with nearly 46 percent feeling that their incomes would actually decrease in 2009. However, confidence seems to have returned, with 59 percent expecting their incomes to increase in 2010.
Effect on spending As a further sign of this relative confidence, 44 percent of respondents to our survey said that despite the downturn, they expected to spend the same or more on luxuries. This sentiment was particularly strong in Shanghai, with 27 percent expecting to increase their luxury spending, and 29 percent of 25-29 year olds expecting to spend more on luxuries.
4 National Bureau of Statistics 5 TNS qualitative study focus group Q: To what extent do you expect the global financial crisis to affect you in 2010?
Not at all
Only slightly
Significantly
A lot
0 10 20 30 40 50 60 70 80
January 2010 September 2009
Q: How do you expect your income to change this year compared with last year?
Increase
Remain the same
Decrease
0 10 20 30 40 50 60
January 2009 September 2009 January 2010
This confidence appeared particularly strong in early 2010, as Sandy Chen, Research Director from TNS, notes: “During the recent Chinese New year holiday, flights from Shanghai to Paris were fully booked out by Chinese tourists, many of them looking to make luxury purchases. In Hong Kong, high-end shopping streets were packed with Chinese tourists. Several stores such as Louis Vuitton had Chinese visitors lined outside the entrance as they struggled to cope with the level of interest.”
This is not to ignore, however, that 38 percent of respondents said they expected to cut back their luxury spending because of the economic situation, with respondents in tier-two cities seeming less confident than those in tier-one. Given that the overall desire for luxury has increased, there seems to be a clear link to the downturn, and evidence of basic economising rather than a turn away from luxuries. Luxury retailers, including several featured in this report, talk of continuing high demand in tier-two and even tier-three cities.
6 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 7
While remaining confident of medium- and long-term growth, retailers may need to maintain flexibility in their operations in order to deal with potentially unpredictable spending trends while the economic situation plays out over the coming year or so.
Some things can wait – others can’t Looking through the responses, certain categories appear to face greater pressure than others, particularly those involving relatively high-cost, infrequent purchases. For example, many respondents said they would cut back spending on watches, jewellery, and luxury eyewear. People are more likely to either abandon or at least delay such rare purchases until their economic situation appears more positive.
Demand for 2008’s most popular category, bags, appears to have weakened in this year’s survey, with 37 percent of respondents reporting they expected to cut back spending on bags. Either they are happy to make do with what they have already or they would rather put their money towards other luxury purchases.
How do you expect your spending on luxury to change?
Tier 2 cities
Shenzhen
Guangzhou
City Beijing
Shanghai
TOTAL
0 20% 40% 60% 80% 100%
Decrease Keep the same Increase Never bought and not planning to buy
How do you expect your spending on luxury to change?
35-44 yrs
30-34 yrs
Age 25-29 yrs
20-24 yrs
0 20% 40% 60% 80% 100%
Decrease Keep the same Increase Never bought and not planning to buy Respondents were noticeably less willing to cut back on cosmetics and perfume, with women showing a particularly strong desire to maintain or increase their luxury spending in this category. Sixty-one percent reported that they expected to spend the same or more on cosmetics items, the highest such rating across all the categories. This is mirrored in the responses on buying intentions, with 51 percent of women reporting they would probably or definitely buy cosmetics/ perfume in the coming year – the highest positive rating in any category.
How has your demand for different product categories changed?
“Millionaires are 15 Clothes years younger than Bags their counterparts outside of China, and Footwear their wealth is growing Watches more rapidly.” Other accessories - Rupert Hoogewerf, Hurun Report Jewellery
Cosmetics/ perfume
0 20% 40% 60% 80% 100%
Decrease Keep the same Increase Never bought and not planning to buy
Connoisseurship trumps economising Consumers who have decided to spend less on luxuries face a number of options in reducing their spending. They could choose a cheaper brand or brand level for the goods they wish to buy, or they could stick with the same brand but simply buy less, buy less frequently or buy cheaper alternatives within the same brand level.
Across categories, those surveyed responded overwhelmingly that they would rather stay with the same brand level than switch to a cheaper one, suggesting that Chinese consumers have become accustomed to their higher level, higher quality brands and are not willing to accept cheaper substitutes.
This trend was particularly marked in cosmetics/perfume and jewellery, with 72 percent and 71 percent reporting they would not switch to a cheaper brand level. As more frequently purchased consumables, brand loyalty in these categories can prove incredibly valuable.
This marks an important stage in developing a luxury consciousness. The appreciation of a brand’s quality, prestige and value – connoisseurship – is now more important than simple economic concerns. In 2008, we noted that many Chinese consumers were meticulous in the way they researched and selected luxury goods. This year’s findings suggest that once customers have decided
8 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 9
Changing purchasing habits in light of the downturn (by product)
Clothes
Bags
Footwear
Watches
Other accessories
Jewellery
Cosmetics/ perfume
0 50% 100%
I will buy the same I will buy the same I will buy cheaper brand level but in level, but choose brands in this smaller amounts/ the cheaper category less frequently varieties
on their brand preferences, they commit to them and are not easily swayed by cheaper alternatives, even when they feel they have to cut back a little. Time and effort spent educating and persuading China’s middle class about the heritage, quality and uniqueness of the brand can pay handsome dividends in brand loyalty and attachment.
The expanding number of millionaires and billionaires suggests that connoisseurship will continue to grow in importance. “The number of Chinese millionaires rose by 6.1 percent last year,” says Rupert Hoogewerf, founder of the Hurun Report. “This has been driven by a rise in property prices, the recovery of the stock market and a generally strong Chinese economy. These individuals are, on average, 15 years younger than their counterparts outside of China, and their wealth is growing more rapidly. The male-female ratio is seven to three.”
Size of market – China’s rich & super-rich
US$ 1 billion 300 pax
US$ 100 million 3,000 pax, born 1960
US$ 15 million 55,000 pax, born 1966
US$ 1.5 million 875,000 pax, born 1970
Source: 2010 Hurun Research Institute Building beyond first base Tim King, Alfred Dunhill Ltd.
“It was a slow steady build-up, but over Mr. King is also keen to see some of time our attention shifted further north these franchises expanding beyond as we discovered a strong appetite their initial city of strength and targeting for our leather and apparel products in further second- and third-tier cities. cities such as Beijing, Shenyang, Harbin Indeed, many have the financial and Dalian.” means to expand and will come to the company with their own proposals to for many years Dunhill thrived through enter new markets, although quality this franchise arrangement, which of the retail environment remains a brought together a Hong Kong investor, key consideration for Mr. King. In the a PRC investor and another private past two years Dunhill has taken over individual investor with commercial ownership of the franchise outlets experience in China. At a certain point, in certain cities including Tianjin, the company realised that it needed Chengdu, Hangzhou, Kunming and to take a share of the market with Chongqing. greater control over its products. Today Dunhill directly owns 42 stores across Dunhill has not escaped the economic 14 cities, while a further 48 stores in downturn but has seen business 30 cities continue to operate through rebound strongly since the middle of franchises. 2009. “There was a tough six-month period for us from the 2008 Olympics “In China, it’s either about retail, through to March of 2009, but our sales quintessentially British brand with or franchise retail, which means have really bounced back since then,” A a presence in Asia stretching heavy investment on distribution,” says Mr. King. “There has been some back to the 1960s, Dunhill has found a says Mr. King. “There is much belt-tightening, which is highlighted by receptive market in China. This can be room to expand through this model, lower sales size per-transaction in the largely attributed to its focus on men’s but I expect other approaches will early part of the year.” apparel and accessories, supported become more important to us over by a strong brand story emphasising time, such as consignment models Chinese consumers continue to heritage and connoisseurship. Dunhill using department stores or through travel and Dunhill makes a point of has sought to tap this enthusiasm for partnering arrangements with specialist sharing information on purchasing connoisseurship through its marketing dealerships.” trends among Chinese visitors to efforts, most notably through its shopping centres such as Hong Kong “home” store located in a 1920s villa The balance between wholly-owned as this can be a way of influencing in the old french district of Shanghai. and franchise arrangements requires the merchandising process for stores The store (owned by parent company additional investment to ensure across the mainland. The information Richemont) is fitted out with high- consistency in the retail experience. is also shared with Duty free buyers, end products to showcase Dunhill’s “The franchises are very receptive to another increasingly important sales craftsmanship, heritage and quality. our advice and in return they share channel for the company. valuable feedback on the trends in their Dunhill’s reach extends well beyond local market. I think we have developed Shanghai, however. “We officially a good system to reward franchise entered the China market in 1993, partners that maintain and exceed with stores in Shanghai, Shenzhen and our high standards. That helps us Guangzhou operating through franchise ensure that the product mix and retail arrangements,” says Tim King, regional experience is consistent across all our managing director of Alfred Dunhill Ltd. stores in China.”
10 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 11 Prized and precious Kent Wong, Chow Tai Fook
structure.” Mr. Wong is confident that market is naive – each city tier, each this shows the power of branding and city itself has a different character, and the potential to establish strong brand even within a geographical boundary, loyalty. we need to target our different segments carefully.” This model is holding up in the downturn. High gold prices have had an Cooperation with department stores impact, but by contrast, diamond and has proved a useful source of market jade have seen a surge in popularity. research to help monitor consumer Mr. Wong freely acknowledges that trends and preferences. In addition watches and jewellery have taken a hit, to this, CTf’s 20,000-strong VIP but says that during the latter half of membership scheme enables it to keep 2009 even these categories began to up to date with its most loyal customer rebound encouragingly. base. “Our customers are like family” says Mr. Wong,“ and we treat them as Mr. Wong believes CTf’s strong such.” growth owes a lot to its exclusive image, a position strengthened by its But the customer relationship is crucial recent acquisition of “The Cullinan throughout the retail experience. Heritage”, a flawless, 507-carat “Training our staff is paramount – they diamond bought for HKD 275 million. are ambassadors for the company, its CTf balances this prestige exclusivity products and its culture. We strive to how Tai fook (CTf) celebrated its with a diverse offering to target provide our customers with a personal, C80th year by expanding its reach different customers: “We’ve got our dedicated experience.” to 1,000 stores across China at the end flagship gem stores and our jewellery of 2009. from its start back in 1929 focus in department stores; but we’ve At present, 90 percent of CTf’s in Guangzhou, CTf moved to Macau also expanded to specialist ‘concept’ management is localised. “It’s a and then Hong Kong before expanding stores to target younger consumers challenge to recruit and retain the best, across the mainland in the late 20th seeking ‘trendier’ items. Tastes are but we have a strong brand culture in century. always evolving and we need to reflect everything we do,” explains Mr. Wong, that.” “and we are delighted with the buy-in The mainland market has taken we’ve seen from our local staff.” on increased importance for CTf, This extends to further alternative particularly as Hong Kong has suffered marketing channels. “We’ve recently Looking forward, Mr. Wong and CTf to a greater extent from the global opened our internet sites to direct see great potential in central and downturn. Visits from mainland tourists sales” Mr. Wong explains. “Day to day, western China. “Our initial focus was continue to increase – as does their we see the massive importance of the on the tier-one cities, but we’re now buying power and their appreciation of shopping experience – our customers fairly well spread across the mainland.” quality. really enjoy being in the store – but With the development of mining with so many web users in China and precious metals, Mr. Wong says Kent Wong, Managing Director, recalls browsing, communicating, researching western China is really opening up that not too long ago CTf’s “fixed and shopping, we need to make sure now. “We’re seeing a market driven price” model met with significant we can connect with our customers by domestic demand and domestic resistance. “This has been a real wherever they are.” trends. China’s luxury consumers are change in mindset in tier-one and developing their own distinct identities, tier-two cities. Customers are no While maintaining ownership of the and our challenge is to meet their longer fixated on sale items and brand, CTf has adopted a franchise demands and expectations.” discounts - they recognise and model for most of its operations. appreciate the quality we provide and “finding a good partner is crucial. the appropriateness of the pricing Speaking of China as a single luxury Luxury consciousness in China
In our previous reports in 2006 and 2008, we highlighted the four main angles of luxury appreciation on an axis of conformity/individuality against ownership/ experience: individuality; status; connoisseurship; and indulgence. This year’s survey has shown consistent belief that luxury consumption can be a mark of high quality of life and good taste, while only 14 percent of the respondents said they saw luxury goods as a waste of money.
Nevertheless, with economic uncertainty in certain parts of the country during 2008-2009, luxury consumption needed to show its utility more than before – either functionally or emotively. Both are shown in the results of this year’s survey: the functional drive of purchasing luxury “for important/formal occasions” continues to rank highly, while the emotive needs of self-reward and self- pampering have risen significantly. for men, using luxury to reward themselves has even surpassed the functional need “important/formal occasions” as the most important motivator. for women, the gratification needs of self-reward and pampering also rose far more than other needs.
Male/female reasons for buying luxury goods
Male Female 01: To reward myself 46% 62% 02: To pamper myself, treat myself well 27% 62% 03: For formal occasions 41% 43% 04: To reflect my personality 37% 43% 05: To enhance my self confidence 37% 35% 06: To enjoy luxurious, high quality lifestyle 38% 31% 07: To reflect special taste and discernment 36% 31% 08: To pursue classics 30% 34% 09: To pursue fashion/trends 27% 35% 10: To represent social status and wealth 33% 29% 11: For value maintenance or appreciation 28% 29% 12: To stand out from the masses 28% 23% 13: Because of work necessities 27% 23% 14: To enjoy the ownership 21% 20% 15: For connoisseurship or collection 20% 18% 16: In order to fit in within social circles 18% 17%
12 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 13
Now it’s personal Though in some ways reacting cautiously to the downturn, with many set to rein in their spending a little, a clear flipside is that consumers appear to be more willing to pamper and reward themselves. As we go forward, it will be interesting to see whether this is a longer term trend or a “feel good” boost to counteract the current gloom surrounding the global economy.
While the desire to reward oneself was also the top answer in “reasons for buying luxury goods” in 2008, its response rate in 2009 went up from 44 percent to 54 percent. This rise was particularly strong in women (46 to 62 percent), highlighting the importance of female consumers in driving trends. The older group, 35-44 year olds, recorded a significant rise of 16 percentage points (from 36 to 52 percent), as did 25-29 year olds (from 40 percent to 56 percent).
A similar trend can be observed in the desire to pamper oneself – which jumped from 36 percent to 44 percent, with men and women registering 6 and 7 percentage point rises respectively. This saw pampering/treating oneself leap from sixth place to second in the overall ranking of purchase motives, making the top two all about being good to oneself.
This reaction suggests that luxury is providing both incentives and comfort for China’s luxury consumers against a backdrop of economic uncertainty. Looking through the ranking of all purchase drivers, the top six (with the exception of important/formal occasions) are about personal choices and feelings. Back in 2008, consumers placed a high importance on reflecting taste and discernment (a relative, social value) and pursuing classics, with more personal/emotive motivators taking up only three of the top six places.
That is not to say these are no longer important – they clearly are, and the response figures are similar – but that they are currently taking a backseat to personal emotion and experience of luxury.
Reason for purchasing luxury goods 2009 Rank 2008 To reward myself 54% 1 To reward myself 44% To pamper myself, treat myself well 44% 2 For some important/formal occasions 43% For formal occasions 42% 3 To reflect my personality 42% To reflect my personality 40% 4 To reflect special taste and discernment 40% To enhance my self confidence 36% 5 To pursue classics 38% To enjoy luxurious, high quality lifestyle 35% 6 To pamper myself, treat myself well 36% To reflect special taste and discernment 33% 7 To enjoy luxurious, high quality lifestyle 36% To pursue classics 32% 8 To enhance my self confidence 32% To represent social status and wealth 31% 9 To pursue fashion/trends 29% To pursue fashion/trends 31% 10 To represent social status and wealth 25% For value maintenance or appreciation 28% 11 To stand out from the masses 24% Because of work necessities 25% 12 Because of work necessities 22% To stand out from the masses 25% 13 For value maintenance or appreciation 22% To enjoy the ownership 21% 14 For connoisseurship or collection 19% For connoisseurship or collection 19% 15 To enjoy the ownership 19% In order to fit in social circles 18% 16 In order to fit in social circles 13% In our previous studies, we explored the emergence of China’s middle class luxury consciousness. This year, we can see these attitudes showing continuity and solidity. While there are interesting shifts in certain aspects, China’s middle class consumers are beginning to show greater consistency in their attitudes to, and appreciation of, luxury.
Attitude 2009 2008 I appreciate the superior quality of luxurious brands, not simply the famous brand names 64% 69% Luxury brands don’t need to be recognised by the mass but should be appropriate for one’s own personality 63% 69% I long for luxury goods but I can’t afford them now 41% 49% Compared with purchasing luxury bags and clothes, I prefer to spend money on luxury experiences such as travelling 38% 38% abroad, playing golf, going to premium hotels to enjoy a spa, etc., etc. I am practical and not willing to pay for the premium claimed by luxury goods 35% 31% Only those brands of high awareness can be called luxury brands 34% 40% I don’t like to show off, so I would not buy any luxury goods 27% 23% If I owned some luxury goods, I would be reluctant to use them because they are too expensive 20% 21% Only those brands known and appreciated by the minority can be considered as luxury goods 18% 23% The luxury goods used by celebrities are a good reference when making the decision to buy 16% 11%
Luxury is an experience In our 2008 report, we noted the rise of the “indulgence” factor in China’s consumer market. This is confirmed clearly in tier-one cities in this year’s report, with rises in all four in terms of preferring to pay for luxury experiences rather than bags and clothes. Guangzhou saw a huge leap from 36 to 56 percent.
“China’s super-rich are looking for one-of-a-kind experiences, and luxury offerings are increasingly stepping up to meet this demand,” says Kunal Sinha, executive director with Ogilvy and Mather in Shanghai. “This is evident across hospitality, entertainment and recreational sectors. In the run-up to the 2010 Shanghai Expo, some 11 luxury hotels with over 3,250 rooms will open their doors. In addition, boutique hotels, and exclusive, themed tours and clubs are emerging to offer truly unique experiences, adding a further dimension to the luxury market.”
“Compared to simply buying goods, I prefer to pay for luxury experiences”
tier 2 cities
Shenzhen
Guangzhou City Beijing
Shanghai
Total
0 20% 40% 60%
Disagree Agree
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There is a marked difference between older (30-44 year-old) and younger (20-29 year-old) segments, in terms of preferring to pay for luxury experiences. This again conforms to the luxury consumer scale we defined in 2008: as consumers
“Compared to simply buying goods, I prefer to pay for luxury experiences”
35-44 yrs
30-34 yrs Age 25-29 yrs “China’s super-rich are looking for one-of- 20-24 yrs a-kind experiences... 0 20% 40% 60%
This is evident Disagree Agree across hospitality, entertainment and move along the curve from conformity to individuality, luxury experiences offer recreational sectors.” greater potential for unique, personal enjoyment. Older consumers are more likely to have fulfilled lower order “belonging” needs such as conformity, moving - Kunal Sinha, Ogilvy and Mather into higher order, individualistic fulfilment rather than mere accumulation of physical products.
This premium accorded to experience is not limited to buying luxury holidays or outings; it is a fundamental part of making a luxury purchase. In drivers for paying a premium price for luxuries, a good shopping environment ranks more highly than it did last year, though its percentage is similar. It now ranks even more highly than “Exclusive image” – a further reflection of greater emphasis on the personal experience of luxury rather than something defined simply as different from the masses.
Combined with the continued high importance of after-sales service, this highlights the importance of recruiting, training and retaining the customer service staff that can not only meet but exceed the expectations of their discerning and demanding customers. This also has an impact on the continued importance of prestigious flagship stores, despite some rising interest in outlets (see page 26).
High quality continues to be the top-ranking factor in paying the luxury premium – brands cannot trade on their name alone, they must back it up with quality, duration and the confidence/promise of an extended warranty. Consumers are not simply interested in having luxury goods as trinkets to be admired, they want them to be able to stand up to repeated use and to last.
There is still considerable interest in paying a premium for goods that are fashionable, popular and famous, but these figures show a geographic change from our 2008 report. At that time, respondents in Shanghai and Beijing were more willing to pay for fashionable items. The importance of celebrity endorsements ranked surprisingly low. In this year’s report, respondents in Willingness to pay a premium for goods that are fashionable
tier 2 cities
Shenzhen
Guangzhou City
Beijing
Shanghai
0 20% 40% 60%
I am somewhat or very unwilling I am somewhat or very willing
Drivers for paying a premium 2009 Rank 2008 High quality and long duration 83% 1 High quality and long duration 86% Very good after sales service 77% 2 Very good after sales service 79% Long warranty 75% 3 High uniqueness 75% High uniqueness 71% 4 Long warranty 72% Very good shopping environment and service 65% 5 Long heritage 67% Environmentally friendly product 64% 6 Exclusive image 67% Company’s social responsibility 63% 7 Environmentally friendly product 64% Long heritage 63% 8 Company’s social responsibility 64% Exclusive image 63% 9 Very good shopping environment and service 63% Very popular and famous 58% 10 Very popular and famous 60% Very fashionable 54% 11 Very fashionable 55% European origin 30% 12 European origin 31% Celebrities as spokespersons 25% 13 Celebrities as spokespersons 19% American origin 22% 14 American origin 19%
Guangzhou now appear most willing – a jump from 52 to 65 percent; there was a similarly large rise in positive responses in Shenzhen. By contrast, Shanghai, Beijing and tier-two cities have all seen slips in the rates of respondents citing fashionability as a driver for buying luxury goods. It remains a driver, but brands need to appeal to consumers’ individual ideas and appreciation rather than simply building a “fashionable” image.
Environmental and ethical concepts continue to be important emotional drivers for luxury consumers in estimating the brands to which they aspire. This echoes general trends in increasing consumer consciousness and concerns of the environmental and CSR issues in China. With the Chinese government making some bold green commitments and environmental issues rising in the public consciousness, luxury brands can enhance their image by making the most of their environmental credentials.
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Branding luxury in China China’s economic growth and development has been accompanied by an increasing appreciation of and pride in aspects of Chinese culture. In this context, it is natural to wonder whether – and if so, to what extent – luxury brands need to localise their offering and branding.
TNS divides brands and their attractions into four groups: Universal 1) Master brands Master Myth brands 2) Prestige brands Prestige Super 3) Super brands brands brands
4) GloCal brands Origin GloCal brands
First axis: Universal - Origin Category Some brands are perceived as universal: truly global and not related to a country of origin, while for others, the origin - the brand’s source/inventor, country or home market - is especially important.
Second axis: Myth - Category With this axis, some brand positions are based on a signature Myth or narrative; while at the opposite end are brands that are more defined by the rules of the category of product or service in which they operate.
From these positionings, consumers develop different expectations of how each type of brand should make a connection at the local level.
Luxury Brands such as Chanel, BMW, Rolex and Gucci are Prestige brands, with a strong appeal built on their cultural origin or provenance. For example, the quality perceptions of a brand like Mercedes are underpinned by pervasive beliefs about German design and engineering excellence.
• These brands are nearly always in strong display categories with high aspirational value.
• They embody the “best buy” in the category.
• They are associated with status and power.
• Affinity is built on heritage, innovation, and prestige.
Such “Prestige” brands need the least degree of localisation – their appeal is anchored in their origin and the quality perceptions that come with it. Translation and adaptation for local markets could even decrease their appeal. As such, these luxury brands may be best advised to avoid overt localisation in their design in order to better maintain their defining international myth.
A Chinese luxury brand? Given this, can we expect to see major Chinese luxury brands emerge in the near future? While there is no stand-out international Chinese luxury brand as yet, premium brands from China, such as Shanghai Tang, are finding increasing popularity.
With most Chinese brands, their relatively short lives means that none of them have yet developed to the extent that they could be classified as “Prestige” brands based on a classic heritage. Nor do they have the provenance or myth to try to enter this elite group. The idea of a Chinese luxury brand, though entirely conceivable, thus remains some distance away. However, there is a much greater possibility for “Prestige” branding in areas associated with Chinese culture and history – for instance, there already are some strong premium baijiu (Chinese white spirit) brands in China. The China segment Allison Pyrah, Swarovski
spread across China also helped. Many China presents some familiar challenges cities were completely unaffected, as well, such as in training and retaining while our stores in Hong Kong were staff. for Ms. Pyrah, the key to this to some extent carried through by the is rising expectations. Employees’ continued buying of mainland visitors.” expectations are rising, along with the customer’s expectations for a high- Chinese consumers are travelling so quality retail experience. The result is much now that Swarovski is building that the cost of fitting out retail outlets its brand in order to enhance sales continues to rise. Ms. Pyrah believes across all locations, not only within the quality of retail experience has to be China. Chinese tourists are having an aligned across all cities. “The quality of increasingly significant impact on sales retail properties in second- and third-tier in many other parts of the world. cities has improved vastly with fabulous landscaping, decor and infrastructure Another recent development for the so there are no excuses,” she says. company is the launch of a range of “On our part we need to use our best watches, with Chinese supermodel quality fittings in our stores, regardless Zhang Zi Lin brought on board as a of location.” brand ambassador. for Ms. Pyrah, this was significant in many ways; “This Swarovski has been in China for many is the first time we have brought on years and continues to develop a a celebrity endorsement specifically loyal following. Ms. Pyrah has been f Allison Pyrah at Swarovski had to promote our watch line,” she fascinated to watch this following I one word to describe the change explains. “The fact that this is the only develop a virtual presence through in the China market over the last two market where we have a local brand websites and dedicated blogs. “We years, it would be confidence. “The ambassador shows just how seriously don’t necessarily harness or participate self-confidence of Chinese consumers we now take China.” in these sites ourselves, but we do have has now really come through, in their to think about how we respond and how awareness of different products and In a crowded market, Swarovski we keep track of what our customers how to put them together to define has continued to enjoy a very well- are saying about our brand,” she says. their own style,” she says. “China defined brand position. Nevertheless is now a top-tier market, a major Ms. Pyrah has seen some competing This growing community of awareness, segment that is shaping the strategy fashion jewellery brands coming into facilitated by the web, all seems to be for Swarovski globally. The product China. She observes that consumers contributing to that growing sense of mix we need for China is also moving still have a preference for European confidence among Chinese consumers. up-market.” brands, but she is under no illusions about the potential for that to change Swarovski expanded its footprint to rapidly. “A number of Chinese and over 150 stores around China during Asian designers have made it big in 2009 and has continued growing New york or Europe and they are despite feeling some effects of the now coming back to Asia and gaining global downturn. “We had a slightly popularity. Maybe it is because they tougher time of it in 2009, but we understand a certain aesthetic, but in have been less affected than many any case I see this as a trend; it could companies because we have so many be the start of the rise of domestic price points,” Ms. Pyrah says. “Our luxury brands,” she says.
18 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 19 Speed dial Helmuth Hennig, Jebsen & Co.
“Consumer markets that have taken opportunities and put complementary a generation to develop elsewhere products together. We have very are emerging in a matter of a years focused teams on the front end who in China; it is like these consumers understand the products and the are on speed-dial,” says Mr. Hennig. branding, but behind that we have a “Take the market for luxury boats. shared, scaleable back end for logistics There is an enormous amount of real and invoicing.” estate development underway on Hainan Island in the south of China The problems of logistics from a few that is being accompanied by the years ago are no longer such concerns, development of several marinas. All in Mr. Hennig’s view, due to the pace of a sudden, wealthy consumers are of infrastructure development. “It is looking for new ways to spend their now quite easy to run your business money and enjoy their leisure time. for from selected distribution points,” wealthy people in Beijing or Shanghai, he says. “It is also getting easier to this southern region of China is going profile customers. The real challenge to be the equivalent of the Cote is that it is a very crowded market and D’Azur in Europe or the Caribbean in consumers have to choose between the united States. for our Porsche a lot of brands which, from their business, sales have really taken off, perspective, are all quite new.” from just 40 units in 2002 to over 3,500 units in 2009.” The logical extension would be to move or many global luxury more into retail and Jebsen is already “fcompanies, there is a sense of Jebsen’s watch business has evolved doing so in some areas, for example, relief that China exists right now,” says over a longer period and there have working with Porsche to develop a Helmuth Hennig, managing director of been some interesting learning points. boutique Porsche Design store in Jebsen & Co. in Hong Kong. “There A key dynamic is the continued Shanghai. “We don’t ever intend to be was a bit of a stumble in early 2009 in importance of Hong Kong, due to a retailer as such,” says Mr. Hennig. China, but consumption has generally its duty-free status. Hong Kong has “We will continue to focus on our held up thanks to the stimulus always had a profusion of watch and strengths in nation-wide distribution, measures and continued liquidity.” jewellery brands for this reason, but building networks and understanding now it is completely inter-linked with what brands need to succeed, and then This is good news for Jebsen, the the mainland. Brand-building activity helping them achieve that.” Hong Kong-based company which has in China helps to strengthen sales grown from its origins as a shipping in Hong Kong and vice-versa, so This is expertise that may continue to concern into a major distributor and marketing strategies need to be aligned set Jebsen apart. “China will always importer of industrial products and between the markets, as well as more set its own rules, whether it is in tax consumer goods. The company acts widely across the globe. Mr. Hennig and customs regulation or in specific as distributor for Porsche in China and sees a 60:40 ratio in Jebsen’s sales to areas of product regulation such as also imports luxury yachts, carries China and Hong Kong, but even then labeling. One of our strengths is our numerous watch brands including a high proportion of the 40 percent understanding of how to navigate these Raymond Weil, and separately runs in Hong Kong are sales to mainland issues in a country-wide distribution a major wine importing business, shoppers. strategy. We can see recognition within Jebsen Wine. These industrial and China of a move away from reliance on luxury products have an important Mr. Hennig sees Jebsen’s position in the export-oriented economy and we feature in common: they all need to be the chain running from supply through have no doubts about the potential for imported in compliance with exacting to consumer. “We work with suppliers growth in its consumer markets,” Mr. regulations, and also require attentive that need an outsourced partner Hennig concludes. and technical levels of after-sales for distribution and marketing,” he service. explains. “We help to develop the entry Wealthy Chinese cities: Beyond the first tier
With its massive population and fast-paced development, China is home to a growing number of wealthy cities beyond the well-known, tier-one cities of Shanghai, Beijing, Guangzhou and Shenzhen. The 12 introduced below form only a small selection, but give an impression of the scope of growing spending power across China’s cities, with wealth driven from manufacturing, real estate, high-tech, finance, trade, and freight industries, amongst others.
Zhengzhou Tianjin
Adult population: 2.05 million Adult population: 4.55 million Population with monthly household Population with monthly household income above RMB3,500: 2.14 income above RMB3,500: 0.99 million million Number of RMB millionaires: 15,200 Number of RMB millionaires: 14,500 (total for province) One of four provincial-level municipalities (with Beijing, Shanghai and Capital of Henan province; major Chongqing); an international port; strong manufacturing, including transportation hub for central China; petrochemicals linked to nearby Dagang oilfields. strong in manufacturing, textiles and agriculture; home to one of China’s three futures exchanges
Nanjing
Adult population: 3.15 million Population with monthly household income above RMB3,500: 2.45 million Number of RMB millionaires: 22,100 Capital of Jiangsu province, capital of China in previous eras; modern economy built on electronics, automotive, petrochemical and iron & steel, with a resurgent financial sector.
Chengdu
Adult population: 3.32 million Population with monthly household income above RMB3,500: 1.07 million Number of RMB millionaires: 13,500 Chengdu is a popular gateway to the country’s western regions, a regional financial centre and an increasingly notable hub for hi-tech industries.
Chongqing
Adult population: 5.07 million Xiamen Population with monthly household Adult population: 1.78 million income above RMB3,500: 2.02 million Population with monthly household income above RMB3,500: Number of RMB millionaires: 9,700 1.14 million The largest of the four provincial-level Number of RMB millionaires: 11,500 municipalities, and western China’s largest inland port; well developed One of the first five special economic zones established; a industrial base, especially in metals, coastal port city looking out on the Taiwan Strait; consistently minerals and petrochemicals. ranks one of the top 10 “most liveable” cities in China.
Source: TNS and KPMG research. Millionaire statistics provided by Hurun Report
20 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 21
Shenyang Harbin
Adult population: 4.19 million Adult population: 3.23 million Population with monthly household income above RMB3,500: 1.47 million Population with monthly household income above RMB3,500: 1.38 million Number of RMB millionaires: 7,660 Number of RMB millionaires: 5,790 Capital of Liaoning province; a trade and logistics hub for Northeast Asia, with direct rail links to North Korea and Russia; particularly strong in China’s 10th largest city; a gateway automobiles, aviation and energy. to Russia and home to new and high- tech development zones; renowned for its winter ice-sculpture festival and multicultural architecture.
Qingdao
Adult population: 2.25 million Population with monthly household income above RMB3,500: 1.01 million Number of RMB millionaires: 11,100 A major port and naval city, facing Korea and Japan across the Yellow Sea; home to the popular “Tsingtao” beer brand; host city for the Olympic sailing competition in 2008.
Suzhou
Adult population: 1.17 million Population with monthly household income above RMB3,500: 0.96 million Number of RMB millionaires: 15,600 A popular tourist destination for its traditional-style architecture and UNESCO-listed gardens; historically renowned for its silk, now also a base for the hi-tech and pharmaceutical industries.
Hangzhou
Adult population: 2.08 million Fuzhou Population with monthly household income above RMB3,500: 1.88 million Adult population: 1.62 million Number of RMB millionaires: 47,300 Population with monthly household income above RMB3,500: Capital of Zhejiang province; strong 0.97 million in light industry, textiles, chemicals Number of RMB millionaires: 10,200 and hi-tech; just over an hour from Capital of Fujian province; opened to foreign investment in Shanghai by train, with a faster Maglev 1984; a centre for chemicals and a port city on the Min river; line planned; its West Lake is a popular nicknamed “Spa City” for its hot springs and famed for its holiday spot. lacquer products. Technology: Can mass media be exclusive?
While online luxury sales continue to rise globally6, the continuing prime importance of the in-store experience as a driver for luxury in China means e-commerce may not be a pressing priority at present. However, our survey suggests there is scope to utilise mobile technology to personalise customer relationships, shape brand awareness and build customer profiles.
Technology has had a huge impact on retailing as a whole – in a 2008 study, KPMG International found that Asia scored highest for respondents feeling comfortable with using their mobile phones to make financial transactions – 64 percent were at least somewhat comfortable, compared with an overall level of 52 percent.
This increasing comfort with using technology for purchases is mirrored to some extent in our findings, with 43 percent of respondents saying they would be happy paying for general retail goods by mobile phone. However, for luxury products, this drops to 28 percent. With 39 percent registering little or no interest at all in paying for luxury by phone, the continuing importance of the retail experience in justifying the luxury premium is clear. Sixty-four percent of respondents rated the retail experience as a significant factor in their willingness to pay a premium for luxury goods. Plush, prestigious stores with attentive,
Q: In 2010, what will you do more, and what will you do less?
- Decreasing + Increasing
Browse the internet 99%
Chat on online instant message systems 98%
Shopping on the internet 96%
Decreasing Same Increasing
Note: The length of the bars above represent the proportion of consumers who undertook or plan to undertake that activity in either 2009 or 2010
6 “Luxury Goods Worldwide Market” study, Bain & Company, October 2009
22 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 23
knowledgeable sales assistants give shoppers a genuine sense that they are participating in something special. Consumers are pampered and enter a world of reserved, peaceful exclusivity that, they feel, gives them value for the money they pay.
But there is more to the impact of technology on luxury retailing than simply purchasing. As at 31 December 2009 there were 384 million internet users in China – more than the entire population of the united States. The depth of their usage and particularly the use of social media is also growing rapidly, with an estimated 46 percent of China’s internet users active on social networks7.
This social networking can be an important tool for luxury retailers in guiding and managing consumer sentiment about their brands. for instance, one in five “Consumers are Chinese consumers aged 18-44 will not purchase a product or service without first researching it online8, suggesting companies not only need to ensure their looking for a seamless own online presence boosts their brand, but also that they are managing their brand experience brand effectively to ensure that people are talking positively about it. across multiple A survey carried out by IBM showed that 78 percent of respondents said they channels.” would follow a favoured retail brand on a social networking site9, offering scope to engage and encourage consumers on an ongoing basis. China’s unique - Yolanda Wang, IBM internet situation, where local offerings such as QQ, Renren and Sina dwarf more internationally recognised social networking names, will require international brands to develop a new vision of how to manage collaborative, web strategies.
yolanda Wang, China Leader in IBM’s Retail Centre of Competence, believes a strong, multi-media brand presence is an essential component of any consumer- focused campaign: “Our findings suggest consumers are looking for a seamless brand experience across multiple channels. for luxury retailers, this could mean using their online spaces to enhance the prestigious heritage value of their brands, whilst also offering retail scope for experienced consumers who already know what they like and want, as well as a quick-to-market reach to the newly rich in further flung parts of China.”
Not only does this offer a more cost- and risk-effective approach than heavy capital investment, but in a fast-changing competitive environment, a direct online presence also allows luxury brands to closely control and assure the quality, content and exclusivity of an authentic brand positioning.
With the pervasive impact of communications technology in China – it tops the world for mobile phone and internet users – mobile devices offer great potential for fast-paced, interactive communications with customers. Besides simply information gathering, the application of mobile technology appears most focused on practical aspects; for example, 65 percent of consumers surveyed are positive about using SMS to make reservations and book tickets. This practical approach extends to receiving messages, with 57 percent registering their interest in receiving updates regarding new arrivals or limited editions by SMS. Such a service may be particularly useful for the most fashion-conscious (54 percent rate fashionability as a driver for buying luxury goods) and those who prize exclusivity in their purchases (63 percent of luxury consumers rate exclusivity highly).
7 25th Statistical Survey Report on the Internet Development in China, China Internet Network Information Centre, January 2010. 8 China’s internet obsession, McKinsey, March 2010. 9 Meeting the demands of the smarter consumer, IBM Global Business Services, December 2009. A common concern – also seen in responses regarding outlet stores – is authenticity. It is not surprising to see that 64 percent of respondents would be interested in validating the genuineness of their purchase through a simple, efficient SMS process. China’s more than 702.65 million mobile phone subscribers sent 63.79 billion SMS in the first half of 2009,10 suggesting a familiarity that would make such a procedure swift and easy.
Online to in line Online marketing – especially the viral kind, quickly shared and spread via video-sharing sites and blogs – can play a significant role in driving up interest and demand, especially for special events or limited edition items. In 2008, Diesel Jeans launched an online marketing campaign to promote their 30th anniversary “Dirty Thirty xXx”, including a world series of Diesel parties linked online.
This proved almost too successful in China, with one store in Beijing being so overwhelmed with eager customers for the limited edition jeans that police had to be called to manage the crowds.11
10 http://www.digitimes.com/news/a20090903PR200.html 11 Limited Diesel sale tamer than Beijing stampede, South China Morning Post, 13 October 2008
24 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 25
Working capital challenges for luxury businesses
This year’s survey reveals that even in a downturn luxury customers may be reluctant to trade down and purchase cheaper products or brands, and in many cases would prefer to just buy fewer or lower-cost goods from their preferred brands. This has implications for brands attempting to manage working capital, a challenge further complicated by the fact that many are still bullishly looking to expand in tier-two and tier-three cities.
Luxury companies, accustomed to focusing on products and sales, can tend to have weaker cash management systems than companies in other industries. In light of the global economic uncertainty, there is a risk of product over-supply either draining cash resources or impacting brand value. Many companies have become more cautious about working capital. Some have been quite clear in placing cash and working capital as their top priority, even at the risk of losing some sales.
This continues to be a difficult strategy to navigate in a fast-growing market like China and there are signs that companies have become less efficient in managing their inventory over the past two years. An illustration of this is the Days Inventory Outstanding for listed luxury retail companies in Hong Kong and China, which rose from 150 to 171 in 2009.
Average Days Inventory Outstanding
200 170.9 150 140.3 150.3 137.5 133.8
100 Days
50
0 2005 2006 2007 2008 2009
Source: Based on financial statements of listed companies in Hong Kong and China (on the Stock Exchange of Hong Kong Ltd., Shenzhen Stock Exchange and Shanghai Stock Exchange), as reported by Capital IQ. The challenge for luxury retailers in China is how to continue to expand their product range and maintain strategic investment growth whilst efficiently managing their cash and working capital. It is clear that some companies have found themselves overstocked and have had to grapple with the dilemma of using private sales and outlets, or destroying stock.
Outlets: Out of town, not out of mind Out-of-town outlet malls have long been a staple of the American shopping experience – giving shoppers the chance to pick up relatively inexpensive brand name items, albeit possibly out of season or with a limited range or choice of size. By contrast, outlets are comparatively new to China, with major centres such as Shanghai Outlet and foxtown in Shanghai and Scitech Premium Outlet Mall in Beijing still establishing their image and brand range.
In the course of researching this paper, some luxury retailers contacted indicated that outlets did not at present form a significant part of their plans for China. However, others saw them as a cost-effective means of disposing of over- stocked merchandise and generating cash.
from our survey, China’s middle classes appear interested in outlets, but have not had much experience with them. Only 25 percent of respondents had ever visited an outlet store. unsurprisingly, the highest figures came from Shanghai and Beijing, where the major outlet centres in mainland China are currently based.
There is a balance to the apparent low popularity of outlets in China. With many luxury retailers still trying to establish their brands as high-end exclusive offerings, the “discount outlet” option can undercut this prestigious image. This is supported by our survey respondents’ high ratings for connoisseurship, quality, and high levels of service. Luxury needs to feel special, and prestigious flagship stores and higher-end department store locations are likely to remain the dominant shopping choice. This is further boosted by the fact that a solid 16 percent are certain they would be highly unlikely to ever shop at an outlet.
The reasons why Chinese consumers do not wish to shop at outlets gives an insight into what they value most in purchasing luxuries. The fashion-conscious are put off by the out of season products (39 percent), while almost one-third are concerned about the authenticity of products sold in outlets. Whether this is a fair reflection on the outlets is not as important as the fact that it points to the continued prestige accorded to the major stores, which remain important markers for the luxury market in China.
26 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 27
Despite all this, the attraction of outlets for consumers is obvious: price. In times of relative economic uncertainty, this can be a compelling message – 64 percent of those surveyed said they would be interested in shopping in outlets, while 20 percent said they would do most of their luxury shopping in outlets. from a luxury retailer’s point of view, outlets offer a useful way of turning out of season or over-stocked inventory into cash. This flexibility is more compelling in times of relative economic uncertainty, such as we saw during 2009. In addition, for certain product categories, the potentially un-refundable customs and VAT costs incurred in importing goods to China may make shipping unsold items back out to other markets expensive by comparison. Having an established presence in outlets provides a quick, convenient way of making the most of a company’s stock, while also extending its reach to other areas of the market.
Clear strategic management linked to cash and working capital is key Cash and working capital management is a discipline that makes company leaders think about products. It makes them think about the cost and complexity in their product ranges and in their production processes. It also raises questions about supply chain design – and it is often rare to find a supply chain that cannot enhance a company’s cash generating ability.
With this in mind, luxury market participants should consider the following points for managing their cash and working capital more efficiently.
Gain visibility and control of cash flow: Plan and control cash flow and understand fully the impact that different products, supply chains and distribution channels can have on cash flow. use this control to make sustainable working capital improvement, exploiting the capabilities of technology.
Work with, not against, suppliers: The best companies that manage cash are those that work closely with their suppliers to optimise the delivery and settlement process. In some cases, they are working with their “at risk” suppliers to offer quicker payment terms in return for steeper discounts.
Continue to invest, but be prepared: Stress-testing cash flow forecasts and balance sheets can help a company fully understand the liquidity and financing requirements of new operations and its impact on the existing business.
Corporate structure: Consider a centralised cash management structure. Luxury groups tend to follow a decentralised operating structure, which can inhibit their visibility and control over cash. This is a particular concern in China as cash pooling is limited, meaning there can be a failure to optimise the group’s liquidity. One to watch Denise Lo, Richard Mille Asia
It is a testament to our exclusivity and Richard Mille, the man behind the high standards that we were recently brand, is highly-regarded in the watch invited to participate in the SIHH (Salon business, having left his previous International de la Haute Horlogerie), company to set up his new brand arguably Switzerland’s most exclusive, only 10 years ago. This also presents invite-only watch fair.” an interesting challenge for Ms. Lo as Chinese consumers may look for The brand has opened two outlets in heritage and a long track record as China. The first, in Plaza 66 in Shanghai, they seek to establish that sense of opened two years ago and a second connoisseurship. The good news is opened at the Legendale (a recently while Richard Mille may be a young opened five-star hotel) in Beijing brand, the watches have held their in June 2009. Richard Mille stores value recently in watch auctions and typically have just four or five highly- Ms. Lo sees signs of a strong and loyal trained staff but, as Ms. Lo explains, following. Beijing is something of a flagship and in total there are 12 people employed Another attribute of Richard Mille is there. a strong association with formula One motor racing, and the brand is The visibility associated with these endorsed by the Brazilian racing driver locations is of course a great starting felipe Massa. However, Ms. Lo feels point, but Ms. Lo confides that interest the impact of such an endorsement hina offers opportunities for in Richard Mille watches was gathering may have limited appeal within China Cgenuinely niche brands, but in momentum even before these outlets for now. for Ms. Lo, the challenge is such a vast country, it is a wonder opened in early 2009. “Word began to get the name out in the right circles where to start marketing your to spread at high-society events and and extend awareness in China’s products. Richard Mille is a Swiss building awareness informally like this second tier cities. “Many second-tier watch manufacturer that produces is also important for us,” Ms. Lo notes. cities have more than their share of barely 2,000 timepieces a year, with millionaires,” she says. “We cannot prices starting from RMB 400,000 Ms. Lo believes that demand for luxury justify opening boutiques in all these per item. Already one-third of those products at the very high end has cities so we have to find other ways of timepieces are sold in Asia Pacific, held up well over the past year. The going on the road with exclusive events with China and Hong Kong combined numbers of millionaires and billionaires to present our products.” representing one of the largest in China continues to multiply and the markets. process of endorsing high-end products Appetite in China is growing, but for continues to cascade down through Ms. Lo the expectations are now Denise Lo is Managing Director North society. “In mainland China, there dauntingly high. “for almost any brand Asia for Richard Mille and has overseen is a sense of peer pressure among globally, the next five years are going the brand’s breakthrough into China the emerging elite,” says Ms. Lo. to be all about China,” she remarks. over the past year. Her company also “People want to be on a par with their carries the franchise of the Boucheron contemporaries and display their good jewellery brand in Hong Kong and taste. Our consumers in Hong Kong operates in China through a franchise tend to be a little more private. They arrangement with a partner. are more like connoisseurs, and tend not to display their wealth on a day-to- “Our products are incredibly technical day basis. Maybe that is an indication and exacting,” explains Ms. Lo. “This of the way things will develop in China, has become a hallmark of Richard Mille. but I think it’ll take time.”
28 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 29 Luxury destination Mark Lettenbichler, Ritz Carlton Group Hotels
The global financial crisis has had an global luxury brand. Its sales and impact on Ritz Carlton’s corporate marketing teams are focused on business in China and that makes driving up awareness with Chinese it even more important to target customers and travellers. “This is a the domestic luxury consumer. The great time to do so,” says Mark. “Not travel and entertainment budgets of only is China an increasingly popular multinationals have been hit, and the travel destination – a new Ritz Carlton demand from Chinese corporate clients Shanghai Pudong is opening in June is not yet strong enough to make up 2010, just in time for the Expo in 2010 for this shortfall. There are signs from – but we’re seeing a marked increase global contacts and colleagues that in appreciation for fine dining and fine this is slowly turning around, but the wines. There’s a groundswell towards numbers for the turn of the year 2009- greater luxury appreciation all over.” 2010 will be a more obvious marker. This growth brings its own challenges, There are signs of increasing demand and Mark recognises that there is from Chinese corporations, however. growing competition, particularly Behaviour is already changing as in Beijing in the wake of the 2008 competition drives up demand for Olympics. “Everyone wants to make luxury as an incentive for staff and a big entry in China right now, so customers, as well as a sign of it’s becoming a crowded market prestige. temporarily. In some ways that’s good itz Carlton Group began their China – it helps develop a ‘luxury destination’ Rjourney in 1998, and their progress As a result, Ritz Carlton makes sure feel, but it’s important to do your since has been steady, focusing on it focuses its offering to the local homework before making investments. the right deal, the right investor and market, particularly as there is a We’re happy to take the time to select the right location. Operating on a strong willingness in Asian markets the right locations and partners.” strict, 100 percent management basis, to use hotels for special events from choosing the right partners in the right weddings and birthdays to major Getting known beyond the big cities locations is even more important to delegations. is a challenge. Ritz Carlton appears building lasting success. most well known in Shanghai, but the Customer profiling is tricky in an sheer size of the China market can Mark Lettenbichler, Vice President, experience-based environment, complicate things, despite the wealth Area General Manager, Ritz Carlton especially since everyone enters Ritz of opportunities it offers. “Some Beijing, believes the brand has Carlton hotels with a different level clients don’t realise yet that we have succeeded in establishing a strong of expectations. “We collect ‘guest a presence in other big cities, such connection to luxury living and he sees preferences’ so we know what our as Guangzhou,” Mark adds. Such is significant scope remaining in enticing customers enjoy, and we try to isolate Ritz Carlton’s confidence in the future local customers who are new to the some common themes to guide our of the China market, they are already luxury hotel experience. “Chinese response,” says Mr. Lettenbichler. looking at second- and third-tier cities. consumers are aspirational. Many of “But ultimately, we want our “It hasn’t been easy to enter certain them have never experienced luxury customers’ experiences to be unique, cities, but these developing cities will before, so we enjoy the challenge so we’re always looking to go above be the key emerging markets in the of surprising them with something and beyond.” near future.” unforgettable.” flexibility is therefore important here as well; “There’s no Ritz Carlton sees its reputation in China one menu to fit everyone,” he adds. as being an exclusive, prestigious Strategies in a strengthened transfer pricing environment
In building up their brand images in the emerging market in China, luxury goods companies have engaged in extensive advertising, marketing and promotional activities. These activities have attracted the attention of the Chinese tax authorities.
Brand-building promotional expenses are often associated with the creation of marketing intangibles. The definitive meaning of marketing intangibles is not always clear; however the term can include brands, trademarks, the local market position of a company or its products, distribution channels and customer relationships. With many luxury brands operating in China not yet profitable, the value of these intangibles is further clouded.
The tax environment facing luxury brands in China has recently changed dramatically with the introduction of new tax and transfer pricing regulations. To deal with these new challenges in transfer pricing, luxury brands will need to establish a clear and proactive strategy. Any such strategy will have to clearly define and validate the transfer of royalty payments, possibly using either a Cost Sharing Agreement or Advance Pricing Arrangement as a tool to mitigate taxpayer risk.
Royalty payments in China’s luxury sector Royalty arrangements, where a licensor provides an established trademark or brand name for use in the conduct of a business to the licensee in return for a fee, can be economically and commercially justifiable depending on the particular circumstances of the financial relationship and brand usage. Even when royalty payments force a local entity into losses during its initial entry into the market, it may still be possible to justify these payments.
A circular released by the Chinese tax authorities in 200912 clarified the SAT’s interpretation of royalty payments for proprietary knowledge. It defines a royalty payment for proprietary technology as involving “a technology licensor who agrees to license unpublicised technology to another party for free use, in which case the technology licensor usually does not participate in the specific implementation of the licensed technology by the technology licensee and does not guarantee the result of the implementation.” This approach is similar to recommendations in Article 12 on royalty payments in the OECD Model Tax Convention.
12 Guoshuihuan Number 507, issued by the State Administration of Taxation
30 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 31
Chinese tax officials appear to be particularly concerned about the value of the royalties Chinese entities are paying to foreign affiliates for intangibles in the luxury goods market. Local tax officials assert that local operations should realise immediate profits if the recently-introduced brand name has value. Otherwise, they argue, Chinese affiliates may be overpaying for brand licensing. The tax authorities question whether these fees are often too high given the lack of luxury brand name recognition during the early phases of market entry in China.
As a result, China’s tax authorities have intensified transfer pricing audits in terms of intangible asset transactions in recent years, especially regarding overseas royalty and licence fee payments. Recent transfer pricing circulars issued by tax authorities have also confirmed that they expect at least minimal profits to be earned by any single-function manufacturer, distributor, or retailer. for luxury goods companies dealing with continuing uncertainty from the financial crisis, this raises several additional considerations: single-function companies are not expected to share group losses in recessionary times, and a minimal routine profit is expected to be earned by Chinese affiliates to reflect their simple functional and risk profile.
In addition, China continues to discourage the payment of related-party management fees and has repeatedly challenged taxpayers on the validity of these charges. Many taxpayers have faced non-deductibility issues as a result. Companies with multiple related-party transactions occurring in multiple directions must interact with each other at arm’s-length, and due to a lack of legislation allowing for consolidation for Chinese tax purposes, any significant related-party royalty payments and service payments may trigger further scrutiny and the potential for double taxation.
In all of these situations, the Chinese tax authorities put the burden of proof onto the domestic taxpayer. To help ensure that royalty payments are being priced properly, Chinese taxpayers are required to document their related-party transactions contemporaneously and demonstrate compliance with the arm’s- length principle. This documentation is then used by Chinese tax officials to monitor and assess Chinese taxpayers in terms of congruity with China’s transfer pricing regulations.
Marketing intangibles Issues related to marketing intangibles and the affiliated royalty payments for luxury goods companies operating in China have also been of heightened interest to Chinese tax officials. In particular, officials are concerned about whether multinationals are applying a consistent approach in their local and global pricing policies. To this end, the authorities have been demanding that Chinese affiliates substantiate all related-party royalty payments by producing evidence of an economically-reasonable pricing basis, as well as supporting material that proves third parties are conducting comparable transactions at similar pricing levels and on similar terms.
The situation is further complicated when local distributors or retailers of luxury products develop their own marketing intangibles to satisfy the unique characteristics and size of the Chinese market. for example, many luxury brands establish flagship stores in China as a visible and significant marketing channel. The costs incurred in setting up such a store for marketing purposes may be viewed as an investment in local brand awareness (or even global brand awareness at the expense of local operations depending on the cost recognition approach of the company) and, as a result, Chinese tax authorities may require that more income be allocated to Chinese affiliates of foreign companies as a contribution from the brand owner to expanding its market share within China.
Mitigating luxury sector taxpayers’ risk New Chinese transfer pricing requirements, enacted this year but retroactive from 1 January 2009, mandate that short-term analyses be updated on a contemporaneous basis. Due to the complexity of their transactions, luxury companies may also consider two long-term alternatives offered by the Chinese tax authorities: Cost Sharing Agreements (CSAs), and Advance Pricing Arrangements (APAs).
Article 41 of the new Corporate Income Tax (CIT) law introduces CSAs as an option for Chinese taxpayers. under Article 112 of the CIT Implementation Rules, an enterprise may share common costs if the costs and expected benefits are matched. As Chinese tax authorities become increasingly insistent that local marketing activities create value for brands, companies with local marketing expenditures which create value for a brand may benefit from sharing these costs with overseas related parties. A company is more likely than not to benefit from a CSA because the royalty payment for using luxury brands or allocated service costs would be deductible, and theoretically no additional business tax and withholding tax should be levied. However, companies need to balance the risk that a portion of commercial ownership of valuable marketing intangibles would reside in China.
Another long-term planning option companies in the consumer market arena may benefit from is an APA. China has concluded several APAs within the last five years, and with more underway, the SAT is becoming increasingly sophisticated in proactively resolving transfer pricing issues. APAs provide luxury companies with a practical approach to reducing uncertainty about their related-party transactions. Another benefit of APAs, especially for luxury goods companies in turbulent economic conditions, is that they encourage stability by agreeing the structure for calculating revenues in advance.
Conclusion The key TP risk management strategy for a luxury goods company operating in China is determining which approach to use and how to successfully justify this to the Chinese tax authorities. Although the marketing of intangibles is by nature difficult to price, luxury goods companies have both short- and long-term planning tools at their disposal to help them mitigate their TP risks.
32 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 33
Customs approaches for luxury companies
Despite falling international tariff rates, luxury goods often remain subject to high customs duties within China. This challenge demonstrates the importance of effectively and efficiently managing customs risks and opportunities for companies in the luxury sector.
Customs expenses are often mistakenly treated as unavoidable costs of doing business, when in fact customs offers many avenues for direct cost savings. A better understanding of the key customs issues can help companies in the luxury sector to identify customs risks and opportunities.
Developing an efficient customs programme can help to eliminate non-dutiable costs such as royalties, evaluate free Trade Agreements (fTAs) and review tariff classifications. Additionally, China has many special trade zones and bonded areas which can be used to develop a duty-efficient supply chain. The incentives and regulations governing these areas change frequently, so monitoring efficiency and compliance is vital.
The inherent tension between customs and transfer pricing regimes worldwide means that considering the two areas together is fundamental to developing successful cross-border policies.
Identifying non-dutiable costs under the World Trade Organisation valuation code, the final price actually paid or payable for goods by an importer is the value that must be declared to Customs. This includes universal additions to the price, such as royalties, as well as legal deductions. for example, certain cost elements included in the final price can be stripped out, thus lowering duty costs and, potentially, other indirect tax costs.
Non-dutiable cost elements include after-sales or post-implementation services such as training, assembly, maintenance and warranty services. Other cost elements such as finance charges, inspection fees, sales and marketing costs and certain types of commissions can also be deducted based on a review of the supplier agreements and payment structure.
Royalties Ensuring that royalties are treated appropriately for customs purposes remains of key importance for participants in the luxury goods industry. Many luxury goods are associated with well-known brand names which attract substantial royalty and/or licence charges. Goods-related royalties form part of the dutiable cost of goods, regardless of the timing of the royalty payment in relation to the importation of the goods. Goods-related royalties can be defined as those which the importer must pay, either directly or indirectly, in order to be able to sell those goods. To the extent that such payments are not already included in the price paid by the importer, these additional payments must be added to the value of the goods declared for customs purposes. Establishing suitable information systems that track royalty payments and ensure they are, where appropriate, included in the customs value of imported goods is vital for full compliance with customs requirements.
Companies in the luxury goods industry should also consider whether any royalties paid are not ‘goods-related’ royalties. Removing such payments from the invoice price offers an avenue for reducing customs duty costs.
free Trade Agreements There are over one hundred regional and bilateral fTAs offering preferential duty rates for trade between Asian states as well as global trade. The question is whether the benefits of these preferential duty rates outweigh the internal administrative costs of complying with the country-of-origin and documentation requirements.
Exploring the fTA landscape can reveal significant reductions in duties and import-related costs and, even if a company is already claiming fTA benefits, closer examination of practices and procedures may reveal that critical compliance requirements are not being met. Early identification of non- compliance can help companies to make the changes necessary to help avoid costly customs penalties.
Tariff classification Tariff classification, based on the physical form of the goods, determines the rate at which duty is payable on import. Therefore, changing the state in which goods are imported offers the potential to change the tariff classification of declared goods and reduce the associated duty cost. for example, breaking down fully assembled goods into components, sub-assemblies or individual parts could result in the goods being subject to a different tariff classification numbers which confer more favourable tariff rates. There are certain restrictions on this type of tariff planning so it is important to pay close attention to the rules pertaining to specific industries and tariff heading when considering this opportunity.
34 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 35
Special trade zones Depending on relevant supply chain needs and the location of key markets, it may make business sense to shift assembly, manufacturing, or other assembly and manufacturing, or other hubbing activities to special customs zones or bonded parks within strategic locations within China. These types of programmes provide for deferment or avoidance of customs and indirect taxes for various types of business activities and could be leveraged to improve cash flow and/or reduce costs.
As the economic downturn forces companies to evaluate locations for manufacturing and other key operations, now is an excellent time to rethink supply chains and how to best use duty free zones and customs bonded areas.
Transfer pricing interplay Customs and transfer pricing both focus on cross-border transactions and adopt the arm’s length principle, but the drivers for each regime differ considerably. Customs valuation focuses on ensuring goods are not undervalued such that duty is under collected while transfer pricing’s focus centres on checking that tax deductions are not claimed for over valued goods purchases, thus reducing taxes payable. As such, complying with both regimes requires careful management and coordination.
As customs and transfer pricing authorities globally become increasingly integrated addressing the two areas in isolation is becoming progressively more unsound. Companies need to consider implications of policies for one area on their practices in the other. Next stop China Andrew Yu, I.T Group
I.T Group made its first foray into China Mr. yu believes I.T Group is in a good as part of a joint venture in 2004. A key position to grow in a market that is step for the business was buying back characterised by growth opportunities the joint venture in 2007, leading to a and an evolving consumer appetite. renewed push into the mainland China “The multi-brand model is a good market. “It gave us more room to bring way for us to pursue growth, even foreign brands into China, it was easier as Hong Kong is becoming a mature for brands to approach us and it was market for us,” he explains. “I wouldn’t easier for us to leverage our position describe awareness of fashion in China and negotiate openly with those as advanced yet, but consumers in brands,” Mr. yu explains. China do know a lot and are learning fast. China has been resilient to the The company now has 120 self- downturn and another feature of our run stores across China, although business is that we can shift products most of these are in either Beijing or more quickly if we offer modest Shanghai. The company has a further discounts. This gives us flexibility. 40 franchises located in second- and Some high-end luxury brands may have third-tier cities. In addition to its own to discount deeply to keep selling in a stores, I.T Group has been partnering downturn.” with french Connection in Hong Kong and China for the past five years and If there is a downside it is in achieving has also helped the European company scale across such a vast and diverse .T Group was founded in Hong Kong open its new Zadig & Voltaire stores in market. “Our model means we have I21 years ago by four siblings with a Hong Kong. relatively high fixed costs, which will shared love of fashion. As a pioneer only get brought down as we achieve a for the distribution of unheralded or This suggests the downturn has not larger scale around the overall business upcoming fashion brands, I.T Group been too hard on I.T Group, particularly in China,” says Mr. yu. has expanded its store concept from as around half the company’s sales Hong Kong across the mainland come from more modestly priced I.T Group may be relatively new of China, bringing with it over 300 own-label lines. The company started to China, but Mr. yu is banking on international brands. With its listing in producing these product lines in 1995, experience and an original retail 2005, it has ambitious growth plans another milestone for the business. concept to help I.T Group grow. “Hong and fearlessly hopes to achieve half However, Mr. yu notes that some of Kong is a crowded market for brands. If its turnover from China within a few the more cutting-edge imported labels we can succeed here I don’t think we years. have continued selling very strongly, have any reason to fear China either,” despite the economic pressures. he says. “When you come to our stores you’ll “There are strong sales for some find a different proposition for how to of our high-end lines, for example define luxury,” says Andrew yu, Senior embroidered denim selling for up to Corporate finance Manager of I.T RMB 10,000 per item. These are not Group, based in Hong Kong. “We blend just showpieces,” he explains. “The some well-known luxury and fashion Japanese labels that are popular here brands with exciting new designers, to in Hong Kong are also popular on the provide inspiration to our customers. mainland.” With China’s Generation y and female consumers rising in affluence, we see plenty of uptake for our style of fashion retailing.”
36 Refined strategies: Luxury extends its reach across China Refined strategies: Luxury extends its reach across China 37 A ‘Friendly Revolution’ Raphael le Masne de Chermont, Shanghai Tang
Beijing. We are also well established in Shanghai Tang is matching its strategy travel retail in Asia and we have a fair to tie in with this rising sense of business in Europe and the uS,” says pride. “Shanghai Tang is a relevant Raphael le Masne de Chermont, the lifestyle brand which serves as a company’s Executive Chairman. bridge between cultures, both East and West. We offer consumers a ‘friendly Shanghai Tang has a network of Revolution’ – a new style of dressing boutiques, including Shanghai, New and living which is modern and at the york, Paris, London, Tokyo and Madrid, same time faithful to Chinese identity as well as stores in Dubai and Macau. and culture.” Hong Kong serves as the headquarters with nine stores, while China remains The lifestyle brand is also due to its main target for expansion plans. launch Shanghai Tang Lounge, its The brand currently has 12 boutiques first branded music disc this year. In located in tier-one and tier-two cities January, its first ‘own brand’ cafe was across mainland China, with plans to opened in xintiandi, a popular up-market open four more this year. retail zone in Shanghai. “We aim be a friendly, colourful ambassador of “There is some reassurance for modern China, through all lifestyle mainland Chinese consumers to see elements,” Mr. Chermont adds. our shops in Paris, London and New york; it helps show we are a strong China is not without its challenges, roudly Made by Chinese” international brand. When it comes to particularly in administration and “Pis the mantra created by brands in China, the most important licensing. To tackle the challenge of entrepreneur Sir David Tang, who word is not luxury, it is international,” copy-cat rivals, Shanghai Tang rolls out founded lifestyle brand Shanghai Tang adds Mr. Chermont. new collections every six months. in Hong Kong. Three years ago, mainland Chinese Mr. Chermont also believes there is a Established in 1994, Shanghai Tang consumers formed only 2 percent of need to keep ahead of the fast growing started out as a chic Chinese emporium Shanghai Tang’s business, in contrast to e-commerce business in China, “China for visitors to Hong Kong. It has since 20 percent today. “In terms of location, has its own equivalent of the major developed into a lifestyle brand that we have to reinforce the message online portals. Rather than simply blends modernity and tradition. This to Chinese consumers that we are replicating your existing e-commerce places it in the enviable position of a luxury brand and in order to do so, website, you should create a new one, being one of China’s very first luxury we need to be based in the shopping specific for your China business.” brands, at a time when the country is malls.” rapidly becoming one of the world’s The main focus for global brands most influential economies. The 2008 Olympics in China helped however, is to manage their reputation. to propel the brand’s image amongst Shanghai Tang has been proactive in While the global financial downturn Chinese fashionistas. “The Olympics launching an ethical luxury programme had some impact on the business, helped to instill a growing sense of in China. Projects include working with as it has on most luxury brands, the national pride and greater awareness minority groups in yunan and Sichuan brand’s strong presence in Hong Kong of China’s cultural heritage. Chinese as well providing funding to help helped to act as a buffer. And as the people increasing see themselves not save China’s rapidly diminishing tiger global economy recovers, the focus for only as a strong nation, but also as a population. the brand is to continue to expand in creative nation. All the clichés about mainland China. the Chinese label are now falling apart, “As we are the torch bearer of luxury as China fast becomes the engine of in China, we want to endorse an ethical “The good news is that we are now the global economy,” Mr. Chermont approach. We focus on minorities in replicating our strong Hong Kong explains. China because their rich traditions and business strategy in both Shanghai and cultures are an incredible source of aesthetic inspiration,” he concludes. About KPMG
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From the factory floor to the shop floor 緊扣時機 Five ways that companies in China are extracting value from their supply chains 中國消費行業現狀與上市融資報告
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Luxury Business: From the factory floor to Seizing the Opportunity: Responding to the crisis the shop floor A Snapshot of China’s Consumer Markets and IPO Cases (available in Chinese only)
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